What Does the APR on my Loan Mean?
When comparing home loans, you need to blend all the costs into the equation in order to effectively analyze the best deal for yourself. A mortgages interest rate ONLY reflects the cost of the interest on the loan. Most loans also have upfront costs which can vary significantly. The APR (annual percentage rate) amortizes the upfront costs of the loan (origination fees,, broker fees etc.) over the life of the loan and adds the charges to the interest rate. Additionally, if you choose to pay a point to bring down the interest rate, that cost will be reflected in your APR.
When you shop for the best mortgage for your state of affairs, you need to take into account both the APR and the interest rate. The interest rate reflects your monthly payment, but the APR reflects the total cost of the loan. Should you plan on refinancing or paying off your home early, then paying a higher interest rate, but a lower APR is often cheaper. That’s because the high upfront fees are spread over a shorter period of time.
Additionally, you need to compare lenders rates and costs on the SAME DAY, rates constantly change and you’ll get skewed data comparing at different points in time. All that said, it’s not all about the numbers. You’ll also need a lender that is going to provide quality service so you don’t find yourself waiting to close when you’re furniture is in front of your new home.
Correctly making these types of decisions can save a homebuyer a HUGE amount of money. For example, if you take out a mortgage of $300,000 at 4.5% for 30 years, you’ll pay $247,220 in total interest. If your interest rate is 5.0% on the same loan, you’ll pay $32,547 more in interest over the life of the loan. Your monthly payments will be $90 more per month at the higher interest rate.
At the “Cooke Team” both Roy and Bea are very talented in this type of analysis. Roy played poker professionally in the tough poker environment of Las Vegas for 16 years and has a great understanding of risk/reward equations. Bea has a degree in mathematics and can compute about anything.
If you have any further questions regarding financing call “The Cooke Team” at 702-376-1515. We have highly knowledgeable contacts to assist you in this important financial decision.